Premium Eating Strategy - BankNifty Weekly Options

[mycall]

One small clarification, if you don’t mind:

Here you meant, the BN spot moved / crossed the strike price of one of the legs, am I right?

Sorry.... I made mistake there... if the short strike is 25000 then exit when price DROPS to 25100... 100 pts to/before the short strike... I messed up big there...

Hope the cloud is clear now...

 

[govindheg]

Sorry.... I made mistake there... if the short strike is 25000 then exit when price DROPS to 25100... 100 pts to/before the short strike... I messed up big there...

Hope the cloud is clear now...

Yes. Thank you.

 

[VJAY]

Dear mycall,
As you trading this method how much loss you seen when stoploss hits after 2 shifting of profit side strikes?

 

[mohan.sic]

I feel what I posted yesterday about shorting main series options and buying current series option may confuse some fellow traders... hence I like to elaborate here... whatever I say here are for educational purposes

I just want to make the walk down the path a bit easier for relatively new traders

Okay so lets start with the data:

Main series (26th July expiry)

As on today in option chain ATM options price
26500 PE+CE = 676
Means we are covered upto 676 pts both sides of the ATM.

Lets see what is at a distance from ATM

ATM+- 400 strikes options price
26100PE + 26900CE = 352
Means we are covered upto 752 pts from both sides of ATM.

We can take any strike... ATM or +-100, 200, 300, 400, 500

Once we short these options... both PE+CE we get credit points.

But this is market... unpredictable... it dances with any tune... hence we need protection...

So for protection we buy current series (12th July) option at 700-800 strikes from ATM which cost us about 30-35-40 max and just wait

Now there is some maths here.

First let's look at ATM
676pts
On any Friday Current Series ATM option will cost us about 400+pts MAX.
676-400 = 276 pts
This is 2nd series of the month. Hence, we got 276 pts to decay within 2 wks, considering ATM remains same. In case of premium will drop irrespective of 26500 become ITM or OTM. We are just taking ATM as a reference point getting value of 276 pts which is up for grab during next 2 series.

Means there is about 130 pts per series.

We are investing 40 pts max a series... so there is still 90 pts

One line I like to add here is nothing is easy... but once we put a system in place we should have patience...

I hope you got the drift by now and request you to observe this... do paper trade for a few weeks...

I wrote a long post... may be there are some mistakes, typos...

Thank you.

My Call,


A) Short position in ATM strikes ( monthly expiry )
B) Long position in same ATM strikes ( weekly expiry )

1)Is that correct ? Now, at what day of weekly expiry these options are available at 40 Rs ?

According to this, there will be 4 trades in a month ( one for each expiry )

2) On what day is each trade initiated and closed (Is it Intraday or carry forward till weekly expiry day's )

3) How is the last week hedged or How can you initiate trade on 4th expiry where weekly and monthly expiry is same

4) Combined premium of weekly options ( week 1 + week 2 +week 3 ) will always be greater than premium of monthly option ( by third week closing). So when we short monthly option and hedge it buy buying weekly options, logically what we loose in buying will be greater than what we get in shorting. How does this work ?

Please elaborate with numbers and dates. Thanks and keep up the good work.

 

[mycall]

Dear mycall,
As you trading this method how much loss you seen when stoploss hits after 2 shifting of profit side strikes?

It depended upon 4 factors to be specific:

i) 'WHEN' means 'Which Day' of the series the S/L is hit...
ii) How much faster BNF moved... strength of the trend
iii) If the VIX is up or there is any national or international major news or event pending like election, budget, Fed review, RBI Review
iv) How 'WELL' I could manage the position

I can give you some ballpark figure...

If it hits at the day of taking position... that is Friday... first week of the month... my loss will be max 100-(total premium collected by initial short + premium collected by shifting opposite side)... considering ATM price is 150....

Generally in a quite market the following is the status of premium different strikes from ATM on Monday... Thursday or Friday this will be 20-25% higher

As per my experience... If we short an option at Strike+-800 say at 15-20 on Friday... BNF needs to move at least 200-300 pts to make it 40 on Thursday...

I don't want to dig any deeper... I know that experienced friends have got the drift by now... and need novice or starters to study this more before getting into it...

But I must say that I was very very proud of this strategy... until last 2016 mainly... this giving me great returns... that time VIX was hovering around 22-15... BNF was around 15k-16k... there used to be more premium and movement was controlled (range)...

Now BNF is 27k and VIX is dwindling around 12-13... just 2% move in BNF can send me packing... twice I got some real kick in my butt for failing to exit the loosing option... you can say out of greed or overconfidence

Presently I use this strategy as a mix with my primary strategy of CS...

 

[mycall]

My Call,


A) Short position in ATM strikes ( monthly expiry )
B) Long position in same ATM strikes ( weekly expiry )

1)Is that correct ? Now, at what day of weekly expiry these options are available at 40 Rs ?

According to this, there will be 4 trades in a month ( one for each expiry )

2) On what day is each trade initiated and closed (Is it Intraday or carry forward till weekly expiry day's )

3) How is the last week hedged or How can you initiate trade on 4th expiry where weekly and monthly expiry is same

4) Combined premium of weekly options ( week 1 + week 2 +week 3 ) will always be greater than premium of monthly option ( by third week closing). So when we short monthly option and hedge it buy buying weekly options, logically what we loose in buying will be greater than what we get in shorting. How does this work ?

Please elaborate with numbers and dates. Thanks and keep up the good work.

1)Is that correct ? [NOT CORRECT... PLEASE READ THE POST AGAIN] Now, at what day of weekly expiry these options are available at 40 Rs ? [THURSDAY EXPIRY or FRIDAY MORNING]

2) On what day is each trade initiated and closed (Is it Intraday or carry forward till weekly expiry day's ) [THURSDAY EXPIRY or FRIDAY MORNING -- CARRY FORWARD]

3) How is the last week hedged or How can you initiate trade on 4th expiry where weekly and monthly expiry is same [WE ARE STILL WORKING ON HOW TO IMPLEMENT THIS STRATEGY ON 3RD & 4TH WEEK]

4) Combined premium of weekly options ( week 1 + week 2 +week 3 ) will always be greater than premium of monthly option ( by third week closing). So when we short monthly option and hedge it buy buying weekly options, logically what we loose in buying will be greater than what we get in shorting. How does this work ? [PLEASE READ THE POST AGAIN... I HAVE EXPLAINED WITH DATES & NUMBERS ... THESE ARE WEEKLY TRADES... WE CLOSE OUR TRADE EACH WEEK AND ENTER NEW POSITION NEXT WEEK]

WE ARE NOT HEDGING THE SHORT POSITION... WE ARE BUYING THE INSURANCE FOR ANY CALAMITIES THAT MAY HAPPEN.

Please let me know if you have any further queries.

And friends... I am again appealing to everyone reading my posts... these are my views and my own methods... researched and developed by me and my partner... These are intended to help my fellow traders understand the beautiful instrument called 'option' which has immense potential...

 

[jetking]

@mycall
regarding the short strangle stress management ,
if BN starts moving one side (up) ,than along with ,shifting the PUT to a upper strike ,can we buy a CALL ,one strike higher, of the sold call,...?

 

[VJAY]

Dear mycall,
in 2nd strategy you kept position untouch upto expiry in your live trades?As this position most of times expires worthless ...please share your experience when you hold it upto expiry without untouch position

 

[mycall]

@mycall
regarding the short strangle stress management ,
if BN starts moving one side (up) ,than along with ,shifting the PUT to a upper strike ,can we buy a CALL ,one strike higher, of the sold call,...?

@mycall
regarding the short strangle stress management ,
if BN starts moving one side (up) ,than along with ,shifting the PUT to a upper strike ,can we buy a CALL ,one strike higher, of the sold call,...?

We can form a credit spread to limit the risk... but that defeats the very purpose of the strategy... it is an aggressive strategy... the moment we buy... we pay something... that gets deducted from the paltry credit we took and target for...

 

[mycall]

Dear mycall,
in 2nd strategy you kept position untouch upto expiry in your live trades?As this position most of times expires worthless ...please share your experience when you hold it upto expiry without untouch position

If price doesn't move much... by Monday closing we generally get our expected profit and exit... 'options' has tricky character... these needs to be pampered always... can't leave it technically 'unattended'... overenthusiastics... rather say confident traders can move both the options closer step by step to increase profit if BNF doesn't move much...